Mortgage interest rates continue to rise for a second week in a row due to the speculation that the Federal Reserve will waiver on the current stimulus efforts and actually begin to slow things down a bit. Mainly because of all the reports coming out that the economy is improving.
According to Freddie Mac, the average interest rate climbed to 4.35 percent for 4.16 percent marking the highest hike in interest rates in 2 months. In addition the average 15 year interest rate climbed from 3.35 percent to 3.27, validating a continued upward trend in rate increases.
So why are the rates increasing?
Basically, the rise in interest rates in determined by a belief that the economy is improving and that the Federal reserve will begin tapering on it’s ongoing stimulus efforts.
The implications of higher interest rates is that buyer demand will go down as is begining to become evident based on the numbers in May. According to the Mortgage Bankers Association, Home loan purchase applications fell by 17 percent in the last half a year.
And if you listen to the National Association of Realtors, contracts to purchase previously owned houses experienced the worst decline in the last three years
Should you be concerned about rate increases?
Yes and No. The rise in interest rates is not necessarily and indicator that creates urgency to go out and start buying homes as often times it could take several months for you to even notice the increase. The good news is that now would be a great time to eveluate your finances and see what impact the increase may have on you or your portfolio. For example if you are on a variable rate mortgage, or have debt that is not on a fixed interest rate, consider taking action in case the base rate increases. Right now it is still at it’s low of 0.5%. If your debt has a variable interest rate you are vulnaerable to any increase in the base interest rate
Plan ahead. Grab a calculator and find out how much you would need to pay each month in the event of a rate inreaseFor example, if you pay 2.5% now, try it at 3%, 3.75% and so on. This will let you know if you can cope financially and you’llbe able to make adjustments accordingly.